As someone who argues that clients should incorporate green building practices into their projects, especially those with an emphasis on energy conservation, one of the great counter arguments is that no one will pay for those improvements when the property is sold. Thus, if the person is not staying in the building for very long the argument against the improvement is that the homeowner will not see the money.
Unless the owner sees things in a broader sense, and unfortunately, most don’t, this is a tough argument to counter. Until now, appraisers generally do not take energy conservation into account.
Many (but certainly not all) builders react the same way. They would rather put money into granite counter tops than energy efficiency since the prospective buyer can see the counter top and appraisers understand what that means.
Further, mortgage underwriters, including Fannie Mae, Freddie Mac and the Federal Housing Administration ignore energy efficiency in home valuations. This means that the extra money spent on high efficiency building, from insulation to lighting and HVAC systems, is treated as a cost rather than a benefit.
As reported in The New York Times the U.S. Senate has introduced, and are you ready, a bipartisan piece of legislation called the SAVE ACT S-1106 (Sensible Accounting to Value Energy). This legislation would mandate that energy savings in homes be valued by mortgage lenders.
The legislation would “have to factor in energy cost savings…” and “…add the value of projected energy savings to the home’s value.” Also “…since mortgage amounts are based on a percentage of the home’s value, a higher value would translate into a larger mortgage”.
My goodness. This legislation would recognize the value of energy improvements, allow homeowners and builders to place a real value on those improvements and help everyone achieve a more efficient home.
Now, lest my friends that hate government subsidies think that this is just a government mandate without merit, the article notes that loan performance on energy efficient homes is better than on non-energy efficient homes. The Appraisal Institute found that default risks are 32% lower on Energy Star Homes than those that are not energy star rated. “The study examined 71,000 home loans from 2002 to 2012”.
I have argued that energy improvements are worth the investment for many years. To builders I have stated that they simply need to market the improvements the right way. Now the U.S. Senate has introduced a sound piece of legislation that might pass and help builders and homeowners while reducing energy demand.
Let us hope that the House of Representatives can see the light.
(For more information, see the attached legislative fact sheet put out by the Institute for Market Transformation. This is provided for information purposes only.)